On the surface, I was hoping the GenRe losses would decline. But I guess not. Nevertheless, I post the following comments on the quarterly report for discussion:
My cut and paste didn't work.
Nevertheless, Look at the section for Net earnings after the subsection Management discussion. In this section, ignore "Realized Investment Gain" and Goodwill Amortization. The increase in Goodwill is primarily from the purchase of GenRe and is just a bookkeeping adjustment that allows BRK to pay less taxes. As WEB always states, the investment gains have NO effect on the value of the company.
WEB likes the amortization deduction since it means more in BRK pockets and less in taxes. BUT, most companies don't like this because it hurts EPS.
If these two lines are ignored, you get $485 million (or $317 per share) for 2Q 1999 and $337 million (or $271 per share) for 1998.
Despite the surface EPS reported by the media. This looks to be an improvement year to year of 17%. AND, BRK will be paying LESS taxes.
The really BIG difference comes for the "Insurance segment - investment income" which, as I understand, is income generated from investing the insurance FLOAT.
NOW, if you add onto that the amount taxes BRK is NOT paying (say at a 40% rate of the goodwill) that's 186 x 0.4 = 74.4 ($49 per share) in 1999 and only 25 x 0.4 = 10 ($8 per share) in 1998.
Taxes NOT paid can be added to other earnings to establish a REAL net difference.
Therefore, the net effect on "operating net" is:
1999: $317 + 49 = $366
1998: $271 + 8 = $279
That's a difference of 31% gain in "effective earnings" between 1998 (pre GenRe) and 1999 (after GenRe) even with the rather large underwriting losses.
This may be rather CREATIVE accounting but that's how I look at the numbers. If the share price degrades, I'll be a buyer again.
Anyone else care to comment?
later, leroyt |
